Your Financial Future: Questioning the move to reduce student loan debt

During the last week, President Joe Biden announced a very controversial new law, forgiving student loan debt up to $20,000.
This debt is money that students borrowed from U.S. taxpayers to attend post-high school educational institutions. The University of Pennsylvania, Wharton School of Business estimates the cost to tax payers over 10 years will be $554 billion.
One of the primary reason people seek advanced degrees is the possibility of earning more lifetime income. According to figures from the Social Security Administration, men with bachelor’s degrees earn approximately $900,000 more in median lifetime earnings than high school graduates. Women earn $630,000 more. With graduate degrees, both genders earn an average of $1 million more during their lifetimes. While not all graduates earn these totals, it can be a major benefit for many.
Unlike most loan programs, student loans are available to almost all people regardless of credit score. The thought was that it would be beneficial to society if more people were educated. This means that the default rate is likely to be higher because of more credit risk. Usually, borrowers with lower credit scores must pay a higher interest rate because of this risk. Student loan debt usually does not charge these higher interest rates.
The bankruptcy code has made it hard to get out of student loan debt through bankruptcy. This was because of the fear that medical professionals and other advanced degree students could rack up huge student loan debt and before starting a high paying career, declare bankruptcy and get out of debt.
The first federal student loan program began in 1958. During this time, millions of tax payers borrowed and paid back their credit obligations. This is six decades of tax payers. There is no doubt that balances due are very large in our country. There are several reasons for this, and several different parties with some responsibility for the dilemma.
First, is the government, itself. The cost of college has been rising at twice the overall inflation rate for many decades. This was possible because everyone could borrow money, so there was no reason for educational institutions to control cost. If Washington, D.C. lawmakers would have dealt with these issues many years ago, we would not have a crisis today.
The other main reason balances are so high often rests with the students. The cost at college and universities varies greatly. Many degrees are available at multiple schools. Occasionally you must attend a specific school, but often, there are choices that can help minimize the cost. For example, attending college in the state in which you reside is typically cheaper than going to an out-of-state college. And students who attend community college for the first two years and then transfer to a larger university often save large amounts of debt. The degree they receive will still show the more prestigious university name.
Students who change majors, drop classes or schedule fewer credit courses often end up with higher amounts due. Students who select schools where they can live at home, instead of dorms, often have less student loan debt.
When the pandemic started, students were told they did not need to pay on their loans and they would not incur interest. Last week, the president extended this to the end of this year. Why would this delay, which is costing tax payers huge amount of money, continue? There are job opening everywhere and the unemployment rate is at record lows.
Many people think this loan forgiveness is unfair to the millions of people who borrowed from the government and repaid their loans. Also, how about the millions who never borrowed. Of course people with loan debt love having their balances lowered or wiped out. The questions, is this fair to all the people who took care of their own obligations?
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.